Marketing Analysis - Krispy Kreme

Krispy Kreme Doughnuts Incorporates principal activity is to produce and market doughnuts and related items. The operations are carried out through three segments, company stores operations, franchise operations and Krispy Kreme Manufacturing and Distribution. The stores are both retail outlets and highly automated producers of over twenty varieties of doughnuts. The company is a branded specialty retailer, and produces more than three million doughnuts a day. In addition to its Krispy Kreme stores, the company sells its doughnuts in supermarkets, convenience stores and other retail outlets throughout the country. The Krispy Kreme Manufacturing and Distribution segment sells doughnut-making equipment, mix, other ingredients and supplies and also operates three distribution centers.

Krispy Kreme has a competitive advantage over other bakeries because the self-rising yeast doughnut has an excellent reputation representing freshness at its finest and because of the innovative doughnut making process. This process appeals to its customers through anticipation and the sensory response. The first indication is the large red "hot Krispy Kreme now" neon sign that's displayed while the doughnuts are being made. When the customer enters the Krispy Kreme doughnut shop, the aroma of the fresh doughnut hits their nose, and the anticipation from watching the fresh doughnuts roll off the line four feet away overtakes them. When the customer gets to the cashier, their mouth is watering and they always order too many. This highly refined presentation through the senses has made Krispy Kreme a cult favorite. (New York Times January 18, 2005) It's been said, "It's not how you prepare your food but how you prepare your guest." (Source Unknown) And Krispy Kreme has prepared both with its doughnut making process.

What have been the key success factors for Krispy Kreme?

Krispy Kreme is as efficient as they are in the business because they go by the motto that "the key to expansion is to have control over each step of the doughnut-making process and be able to deliver hot doughnuts to customers as soon as they emerge from the frying and sugar-glazing process." Krispy Kreme has done so well because they follow their beliefs that you must make the customers happy. Its commitment to quality, affordability, customer service and local community involvement has created a faithful enthusiastic customer base. Its doughnut theaters and quality ingredients differentiate the company from others. They use their marketing skills by stressing the "hot doughnut experience" that customers know them by.

Another one of Krispy Kremes' successful strategies is their doughnut theater, which sets them apart from their competitors. Customers enjoy being able to see how and where their doughnuts are being made. They get the feel of freshness and enjoy the atmosphere.

The company uses a vertical supply-chain, which means that manufacturing and mixing for the doughnuts are done by Krispy Kreme. Thereby reducing costs and improving efficiency.

Another key to the company's success is their reputation of serving high quality doughnuts and beverages; their current marketing practices through word of mouth advertising; the company's goal to become the local hometown doughnut shop (Boone & Kurtz p.151); and their strict franchise selection process. Their reputation begins the process to make Krispy Kreme stand out from other doughnut shops. Without the highest of reputations in the commercial bakery business and without Krispy Kremes high quality process, Krispy Kreme would become just another doughnut shop.

Where is Krispy Kreme vulnerable? What should it watch out for?

Consuming food is an essential part of everyday life; there are therefore many substitute products to Krispy Kremes doughnuts. Since the food industry does not have high profit margins, the competition is in a constant price war. If substitutes can find a way to lower their prices without significantly dropping their profitability, they can impose great threat to the entire industry. As a result, it is important for Krispy Kreme to closely observe the constant changes substitute companies are making in order to maintain their competitive advantage.

Perhaps the greatest threat to Krispy Kreme is the health-conscious consumer. With around 240 calories in each donut, Krispy Kreme doughnuts are by far one of the unhealthiest treats you can eat. As a result, the once-sweet Krispy Kreme is going sour in the mouths of those who care about their personal health.

Failure to be proactive in addressing consumer health concerns, such as obesity, high cholesterol, and diabetes; could result in a significant loss of it's 24.6% of the market share in the doughnut industry.

One thing Krispy Kreme needs to work on is diversifying their product. Competitors, such as Dunkin' Donuts', offer bagels, low-fat products, premium coffees, and newly cinnamon sticks. They offer these products to go with the changing times of the market. They remain to be the top competitor in the market because they are constantly changing their product line to suit their customers.

Overall, we can say that Krispy Kreme has still a strong position in the market. Although it is a smaller company with less financial backing, it remains competitive as its breadth of products appeals across all major demographic groups (including age and income). Its doughnuts have also stirred a cult-like following. Yet its recent problems in strategies (over expansion, unethical accounting procedures) and management could damage its position. Operating expense appears to be very high. Management needs to evaluate the excess in overhead.

What recommendations would you make to senior marketing executives going forward?

Krispy Kreme can continue growing in the market place, but it has to take active steps towards healthier products and an increased Internet use, while closely monitoring competitors and substitute products.

The company will need to offer a calorie conscious menu. This menu may prove to by an asset in expanded market share in the US but also in Europe where diets are also healthier.

Krispy Kremes' great tradition needs to catch up with technology for successful marketing. An electronic campaign should be launched. Krispy Kreme should